Duopharma to see better earnings in 2H


DUOPHARMA Biotech Bhd is expected to post better earnings in the second half of the financial year 2021 (2H21) due to normalisation in demand from the public and private healthcare sectors.

CGS-CIMB Securities Sdn Bhd analyst Syazwan Aiman Sobri said the group expects export sales recovery in 2H21, after a relatively weak in 1H21 due to various movement restrictions in its oversea markets.

Among its key export markets in 1H21 were Singapore, the Philippines and the Middle East, which accounted for close to 70% of Duopharma’s total export sales.

We expect Duopharma to post better earnings performance in 2H21, as we believe consumer c onfidence will return upon the gradual reopening of the economy, leading to better healthcare demand from both the public and private sectors,” Syazwan Aiman wrote in a research report on Wednesday.

Additionally, he said the contribution from the vaccine supply agreement is also expected to kick in 2H21, following its recent conditional registration approval to supply the China National Pharmaceutical Group Co Ltd (Sinopharm) Covid-19 vaccine.

He also noted that Duopharma has also signed a supply agreement for the Sputnik V vaccine, although the approval status is still pending for now.

“We gather that the supply agreement is still intact and could further boost vaccine supply for the national vaccination programme upon approval by the regulatory authorities.

“We have not factored in any Covid-19 vaccine supply contribution at this juncture, pending a firm supply agreement,” Syazwan Aiman said.

CGS-CIMB made no adjustments to Duopharma’s earnings forecasts and retained its ‘Add’ call with an ex-bonus adjusted target price of RM2.30, based on the calendar year of 2022 forecast price-to-earnings ratio of 28.8 times, a two standard deviation from its five-year mean.

“The Drug Control Authority approval for the Sputnik V Covid-19 vaccine and subsequent execution of the government supply agreement are key near-term rerating catalysts, in our view,” Syazwan Aiman added.

Meanwhile, the key downside risks include lower than expected domestic and export pharmaceutical demand and higher input costs.

The analyst said Duopharma was resilient in 1H21 despite Movement Control Order (MCO)-induced demand disruptions.

Duopharma’s 1H21 core profit improved 3.1% on the back of 6.6% top line growth, driven by robust sales from the public sector and growth from its consumer healthcare segment.

“Its 1H21 Ebitda margin remained stable at 19.1% (-0.2% point year-on-year) on prudent cost controls, despite logistical challenges presented by the pandemic,” Syazwan Aiman noted.

Duopharma shares ended 2.12% lower to RM1.85 on Wednesday, valuing the company RM1.74 billion.